The groundbreaking decision in O’Mahony v. Accenture Ltd. and Accenture LLP may open the door for employees working overseas to file litigation in the United States.
The U.S. District Court for the Southern District of New York on February 5 held it had subject matter jurisdiction and permitted a foreign employee working overseas for a U.S. company to sue her employers in the United States as a whistleblower under Title VIII of the Sarbanes Oxley Act of 2002.
U.S. companies with foreign operations should understand potential ramifications of this decision as it relates to international benefits. These companies may also face new liabilities in foreign jurisdictions in which they do business—as well as in the United States.
Background Facts in O’Mahony
In O’Mahony v. Accenture Ltd., the plaintiff, Rosemary O’Mahony, was a partner and employee of Accenture LLP, the United States subsidiary of Accenture Ltd., a Bermuda-based company listed on the New York Stock Exchange.
O’Mahony was an Irish national who worked in the United States for Accenture LLP from 1984 to 1992. In 1992, O’Mahony left the United States and moved to France on an expatriate assignment for the U.S. company, Accenture LLP. She resided in France from that point forward. In September 2004 O’Mahony was made a partner and an employee of Accenture SAS—a French subsidiary of the U.S. company.
While employed by the U.S. subsidiary in France on her expatriate assignment, O’Mahony alleged she advised several executives of Accenture LLP of the company’s responsibility to pay French social security contributions owed on her behalf. These contributions had accrued to approximately $13 million.
Following her employment transfer to the French subsidiary, O’Mahony alleged the Accenture LLP global financial director in New York told her the tax partner, who was also based in the United States, had determined the company’s interests would be better served by not making the French social security contributions. This was to be achieved by affirmatively concealing from French authorities the length of O’Mahony’s residency in France.
The plaintiff allegedly objected to this decision and advised the U.S. entity she would not be a party to tax fraud. Shortly thereafter, in November 2004, the Accenture LLP global business operations director in New York allegedly made the decision to reduce O’Mahony’s level of responsibility—resulting in a significant reduction in compensation.
O’Mahony filed a complaint on March 24, 2005, with the U.S. Department of Labor Occupational Safety and Health Administration (DOL), claiming that Accenture LLP and its subsidiaries violated § 1514(a)(1) of the Sarbanes Oxley Act by retaliating against her because of her objections to the fraudulent scheme that evaded payment of social security contributions due in France for U.S. employees on secondment to France.
The DOL on May 9, 2005, issued a letter setting out its findings and dismissed the complaint on the ground that “each of the alleged elements of her complaint occurred in France” and that the DOL lacked jurisdiction over the claim because §1514A of the Sarbanes-Oxley Act did not apply extraterritorially. O’Mahony then filed an objection and requested a hearing with the Office of the Administrative Law Judges. Administrative Law Judge Paul Teitler upheld the dismissal of the DOL complaint. O’Mahony then filed a petition for review with the Administrative Review Board.
On August 15, 2007, O’Mahony notified the Administrative Review Board of her intent to file an action in the U.S. District Court because the Administrative Review Board did not render a decision within the requisite 180 days from the date when the DOL complaint was filed.
The United States District Court Action
On September 7, 2007, the federal court action was filed in the U.S. District Court. The court reversed the DOL dismissal of the claim. Significantly, the court rejected the defendants’ argument that the anti-retaliation and whistleblower protection provision of the Sarbanes-Oxley Act does not cover employees outside the United States.
Section 1514(A)(1) of the Sarbanes-Oxley Act provides whistleblower protection to employees who:
provide information, cause information to be provided, or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders, when the information or assistance is provided to or the investigation is conducted by (A) a Federal regulatory or law enforcement agency; (B) any Member of Congress or any committee of Congress; or (C) a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct).
The court noted that to state a claim under §1514A, the plaintiff must show by a preponderance of the evidence that “(1) he engaged in protected activity; (2) the employer knew of the protected activity; (3) he suffered an unfavorable personnel action; and (4) circumstances exist to suggest that the protected activity was a contributing factor to the unfavorable action.” Fraser v. Fiduciary Trust, Int’l
417 F. Supp. 2d 310, 322 (S.D.N.Y. 2006).
Defendants moved to dismiss the claim, relying primarily on the decision rendered in Carnero v. Boston Scientific Corp., 433 F.3d 1 (1st Cir.2006), on the ground that §1514A does not apply extraterritorially, that is, “beyond the territorial jurisdiction of the United States.”Kollias v. D & G Marine Maintenance, 29 F.3d 67, 70 (2d Cir.1994).
Facts of Carnero and O’Mahony Distinguishable
Ruben Carnero, a citizen of Argentina and resident of Brazil, sued Boston Scientific Corporation (BSC), the U.S. parent of the plaintiff’s former Latin American employers, under §1514A. Carnero, the plaintiff, alleged that BSC terminated him in retaliation for informing BSC about fraud occurring at two Latin American subsidiaries.
In Carnero, the court held that a foreign employee complaining of misconduct abroad by overseas subsidiaries could not bring a claim under §1514A against the U.S. parent company. The court found that, under the facts of the case, “§1514A does not reflect the necessary clear expression of congressional intent to extend its reach beyond the nation’s borders.” Id. at 18.
The court reasoned that the text of § 1514A was silent as to its extraterritorial application—legislative history indicated that Congress gave no consideration to the possibility of its application outside the United States and, unlike §1514A, Congress expressly provided in other provisions of the Sarbanes-Oxley Act for extraterritorial enforcement.
The court in the O’Mahony decision, however, distinguished the holding of Carnero and highlighted three notable factual differences in the O’Mahony matter.
First, the plaintiff in Carnero was a foreign employee—employed and compensated exclusively by Latin American subsidiaries of a U.S. corporation. Unlike the plaintiff in Carnero, O’Mahony was employed and compensated by a U.S. subsidiary of a foreign corporation. O’Mahony worked in the United States from 1984 through 1992 and was compensated by Accenture LLP, the U.S. subsidiary of Accenture, from 1984 through 2004. Because O’Mahony was employed within the United States until 1992 and compensated by a U.S. company until 2004, concerns raised in Carnero that the United States was interfering with the employment relationship of a foreign employer and its employees were not applicable. Until 2004, the employment relationship was between a U.S. employer and its employee.
Second, in Carnero, the alleged wrongful conduct that gave rise to the claim occurred in Latin America. In contrast, the allegations of wrongdoing in O’Mahony relating to the alleged fraud involved employees of defendants located in the United States and occurred in the United States. Specifically, Accenture LLP perpetrated the alleged fraud by deciding in the United States not to pay French social security contributions owed on O’Mahony’s behalf pursuant to the Social Security Agreement and then acting upon that decision in the United States by not making the payments in question.
Finally, the third distinction was that in Carnero, the plaintiff brought an action against the United States parent company for the alleged misconduct abroad by its Latin American subsidiary. Whereas in O’Mahony, the action was brought against the foreign parent and its United States subsidiary for the alleged misconduct of the United States subsidiary in the United States.
Because the facts of Carnero and the O’Mahony case were so distinguishable, the court noted that the Carnero decision offered limited guidance to the court when rendering the decision. Rather, in O’Mahony, the court focused on the place of the alleged adverse decision, rather than the work site or nationality of the employee. It held that since the alleged decisions to avoid paying French taxes and to retaliate against O’Mahony were made by executives in the United States, the issue of extraterritorial jurisdiction did not apply. The court found that sufficient facts were asserted that, if proven, would constitute a violation of § 1514A. It then went on to hold that each of the following factors are required to prove a violation under § 1514A of the Sarbanes-Oxley Act.
O’Mahony proved that: (1) she engaged in a protected activity; (2) Accenture LLP knew of the protected activity; (3) she suffered an unfavorable personnel action; and (4) circumstances exist to suggest that the protected activity was a contributing factor to the unfavorable action. See, Fraser, 417 F.Supp.2d at 322.
Conclusions
For multinational employers, the decision in O’Mahony demonstrates that U.S. courts may be willing to find a sufficient nexus with the United States and extend subject matter jurisdiction to whistleblowing complaints brought by foreign nationals employed in foreign jurisdictions if the decision to retaliate against the complainant or the decision to commit the alleged fraud is made by executives in the United States. In light of the ruling and precedent, it is therefore prudent for executives and officers of multinational corporations to review the parameters of § 1514(a)(1) of the Sarbanes Oxley Act and note its potential scope.